Need help answering Part C, Entrepreneurial Finance Ch. 5

MINICASE Scandi Home Furnishings, Inc Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2013. Sales during the first full year (2014) of operation reached $1.3 million. Sales increased by 15 percent in 2015 and another 20 percent in 2016. However, after increasing in 2015 over 2014, profits fell sharply in 2016, causing Kaj to wonder what was happening to his "pride-and- oy business venture. After al, Kaj worked as closely as possible to a 24/7 pace, beginning with the startup of Scandi and continuing through the first three full years of operation. Scandi Home Furnishings, located in eastern North Carolina, designs, manufactures, and sells Scandinavian-designed furniture and accessories to home fumishings retailers. The moderm Scandinavian design has a streamlined and unclut- tered look. While this furniture style is primarily associated with Denmark, both Norwegian and Swedish designars have contributed to the allure of Scandinavian home furnishings. Some say that the inspiration for the Scandinavian design can be traced to the elegant curves of art nouveau from which designers were able to produce aesthetically pleasing. structurally strong modem furniture. Danish fumishings and the home fumishings produced by other Scandinavian countries-Swedan, Norway, and Finland-are made using wood (primarily oak, maple, and ashl, aluminum, steel, and high-grade plastics. Kaj grew up in Copenhagen, Denmark, and recaeived an undergraduate degree from a technical university in Sweden As is typical in Europe, Kaj began his business career as an apprentice at a major home furnishings manufacturer in Copenhagen. After leaming the trade, he quickly moved into a management position in the fim. However, after a few years, Kaj realized that what he really wanted to do was to start and operate his own Scandinavian home fumishings business. At the same time, after travelling throughout the world, he was sure that he wanted to be an entrepreneur in the United States. Kaj moved to the United States in early 2013. With $140,000 of his personal assets and $210,000 from venture investors, he began operations in mid-2013. Kaj, with a 40 percent ownership interest and industry-related managament expertise, was allowed to operate the venture in a way that he thought was best for Scandi. Four years later, Kaj is sure he did the right thing. Following are the three years of income statements and balance sheets for Scandi Home Furnishings. Kaj felt that he would need to continue to expand sales to maintain a competitive advantage. After first concentrating on selling Scandinavian home fumishings in the Northeast in 2014 and 2015, he decided to enter the West Coast market. An in- crease in expenses occurred associated with identifying, contacting, and selling to home furnishings retailers in California, Oregon, and Washington. Kaj Rasmussen hopes that you can help him better understand what has been happening to Scandi Home Furnishings from both operating and financial standpoints. SCANDI HOME FURNISHINGS, INC. 2014 INCOME STATEMENTS Net sales Cast of goods sold 2015 2016 $1,800,000 1,280,000 540,000 $1,500,000 Gross praft General and administrative 200,000 53,000 247,000 0,000 Eamings befare tases Income taxes (40%) 4.000 S 6,000 Net income Cash Dividends 93,000 114,000 $74,000 (continued on next page)